Budget 2020: A Step Back to Safety. But Just the First

The most sobering fact about the 2020 Budget is that, dramatic and painful as the cuts proposed by Minister Mboweni are, and as risky as is the political calculation that the president is making, debt will still be rising, both in absolute terms and in comparison to GDP, in three years’ time. That is a marker of the depth of the fiscal quagmire into which South Africa has been led, and a measure of the pain that will have to be borne if we are to get out of it. The key messages of this report are: The 2020 Budget does precisely what CDE has called for over the past few years, embarking on an expenditure-biased fiscal consolidation driven by proposals to moderate the growth of government’s payroll costs; There are legitimate concerns about whether government is able to deliver on this budget, partly because the growth projections continue to seem overly optimistic (especially in light of the coronavirus pandemic), and partly because its fiscal policy rests on government’s being able to extricate itself from the third year of a three-year wage agreement; Even if these steps are all taken and growth exactly matches what government projects, we are still far from achieving a primary balance and, for that reason, we will continue to see debt rise both in absolute terms and in relation to GDP; and South Africa’s public finances cannot be stabilised without faster economic growth.